Real Estate Ownership - Condominium or Fee Simple

There is a common perception that condos are apartment-style buildings, that townhouses are two-story row houses with adjoining walls, and that garden homes are free-standing houses on small lots. Unfortunately, this perception may create confusion about real estate ownership.

The term "apartment," "townhouse," or "garden home" describes the layout and design of certain homes. By contrast, the word "condominium" does not refer to a type of building or construction design. Condominium refers to a form of ownership of real estate. Condos cannot be recognized by observing the building style.

The legal definition of condominium is: The absolute ownership of a unit based on a legal description of the airspace the unit actually occupies, plus an undivided interest in the ownership of the common elements, which are owned jointly with the other condominium unit owners. In other words, each owner of a condo unit has individual title to the space inside of his unit. Sometimes the space is described as beginning with "the paint on the walls." Each unit owner also has an undivided interest in the physical components of the condo building and land.

Condo projects that are built as multi-story apartments are usually recognizable as condos because they don't have land under each unit. In these developments, the condominium association typically maintains the exterior of the building and common grounds, but not the interiors of the units. An insurance policy is usually held by the association to cover the jointly-owned parts of the property, while the individual owners carry insurance for the interior components of their units. The owners pay a fee to support the maintenance of the common areas. A condominium association makes decisions about expenditures for repairs, and handles administrative work related to the common areas of the project.

While some condo projects look like lofts or apartments, others may look like duplexes, townhomes, garden homes, or residences on regular lots. Generally, creating a condo regime allows the developer to get more density approved than he would if he had done single-ownership lots. This is usually the reason why the condo regime is chosen over the single ownership of lots. It is possible that a condominium may just be two units of a duplex. In this case the two owners may jointly make decisions concerning maintenance of any common areas. By setting up the units of a duplex as two condos, the owner is able to sell them separately to two different owners.

If you are considering purchasing a condo, it is very important to read the condo documents carefully. The rules of each condominium are specific to the development, so no assumptions should be made about their requirements. The condo documents specify what maintenance is covered by the common budget. In one case, the association may handle all exterior components, decks, pools, sidewalks, driveways, etc. In another, the documents may require that the individual owners be responsible for complete maintenance of their units, including foundations, roofs, and exterior walls.

After reading your condo documents, you may have questions about the division of work between the individual owners and the common budget administered by the condo association. Your can present your question to the condo board itself. The board can clarify how the issue has been handled in the past, or give you its interpretation of the rules. Another course of action is to ask a real estate attorney to review the documents for you. Other homeowners, Realtors, or maintenance workers are not reliable or appropriate sources for the interpretation of condo documents.

The Texas Purchase Contract for Condominiums has a provision that the buyer be given a copy of the condo documents with a certain period of time to review them. The buyer may decline the contract with no penalty during the document-review period. A resale certificate is also required to be signed by the association president or manager. This form answers questions about current budgets, special assessments, insurance, lawsuits and other matters that affect the association.

In contrast to the condominium regime, you may own real estate by fee simple. "Fee" (from the old word, "fiefdom") refers to legal rights in land, and "simple" means unconstrained. Fee simple ownership is the absolute and unqualified legal title to real property, including both buildings and land. This is the most common type of ownership.

In a fee simple type of ownership, there are several possibilities with respect to the obligations of ownership:

(1) The property may not be in a subdivision at all. In this case, there will be no subdivision restrictions attached to your deed that affect your use of the property. Keep in mind, however, that you may be governed by city or county ordinances or zoning laws, and there may be previous deed restrictions limiting your use of the property.

(2) You may be a part of a subdivision that has very minimal restrictions, no common areas, no architectural control committee, and no mandatory dues. Usually these are older subdivisions.

(3) You may be in a townhome project, a garden home community, or a subdivision of homes on larger lots in which there is a legally-created homeowners association. If so, each homeowner is required to be a member of the association. Many associations charge mandatory dues. The association may require a certain level of maintenance by each property owner, and may enforce subdivision rules. For example, you may need the association’s approval of paint colors, fences, or home remodeling.

As in the condominium form of ownership, fee simple ownership does not prescribe how developments are governed, or how maintenance is handled. For example, a townhome project, with fee simple ownership, may require the owners to fully maintain their units. Or, the townhome association may handle exterior maintenance and yard work for the owners. In subdivisions with single family homes on larger lots, it is more common for the homeowners association to manage only entrances, common grounds, parks and pools, while the individual owners maintain their own properties.

Whether you are buying into a condominium regime or purchasing a fee simple property, you should have a clear understanding of the type of ownership you will have in your property. If you are buying a condominium, you should read the condo documents carefully to understand how maintenance is divided between individual owners and the common budget.

If you are buying a fee simple property, with individual ownership of the land, you should read the deed restrictions (if any) to understand the rules that apply to your property. In fee simple ownership, there may be mandatory dues to pay for common area maintenance, or, in some cases, the dues may pay for partial maintenance of the individual properties.

If you are not clear about your ownership of a property, or have a question about your obligations as a homeowner, it would be wise to review the title documents with a real estate attorney before proceeding with your purchase. Don't hesitate to ask questions! A clear understanding of your ownership, rights, and obligations leads to a more satisfying home purchase.